What Peak Oil?


Never underestimate unfettered human ingenuity operating in free markets

As recently as in January of this year, the science journal Nature published an article by researchers arguing that the world has already passed the tipping point of petroleum production. As Arstechnica described the findings:

Since 2005, the global production of oil has remained relatively flat, peaking in 2008 and declining since, even as demand for petroleum has continued to increase. The result has been wild fluctuations in the price of oil as small changes in demand set off large shocks in the system. 

In today's issue of Nature, two authors (the University of Washington's James Murray and Oxford's David King) argue that this sort of volatility will be all we can expect from here on out—and we're likely to face it with other fossil fuels, as well.

In other words, peak oil production had passed and it was downhill from now on. Not so fast says a recent analysis from Harvard University's Belfer Center for Science and International Affairs. The report by Leonardo Maugeri, a research fellow with the Center's Geopolitics of Energy Project, concludes:

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.

Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production (the level of production targeted by each single project, according to its schedule, unadjusted for risk) of more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their "reserve growth" (the estimated increases in crude oil, natural gas, and natural gas liquids that could be added to existing reserves through extension, revision, improved recovery efficiency, and the discovery of new pools or reservoirs), the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date…. This would represent the most significant increase in any decade since the 1980s.

In addition, Maugeri finds:

Oil Prices May Collapse. Contrary to prevailing wisdom that increasing global demand for oil will increase prices, the report finds oil production capacity is growing at such an unprecedented level that supply might outpace consumption. When the glut of oil hits the market, it could trigger a collapse in oil prices.

While the age of "cheap oil" may be ending, it is still uncertain what the future level of oil prices might be. Technology may turn today's expensive oil into tomorrow's cheap oil. The oil market will remain highly volatile until 2015 and prone to extreme movements in opposite directions, representing a challenge for investors. After 2015, however, most of the oil exploration and development projects analyzed in the report will advance significantly and contribute to a shoring up of the world's production capacity. This could provoke overproduction and lead to a significant, steady dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent trough 2020.

For more background tracing peak oil soothsaying see also, my columns, Peak Oil Panic (2006), and Political Peak Oil (2007), and blogpost, Peak Oil Revisited, (2009).

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  1. This could lead to a glut of overproduction and a steep dip in oil prices.

    The US needs to repeal the CAFE standards immediately to avoid a deflationary spiral.

    1. More importantly I need to redo my portfolio in a couple years.

      1. Ditto. I guess I'm not going to retire on my "soaring energy stocks" after all.

        1. Did you honestly think that energy prices went up rather then the value of the dollar went down?

    2. A deflationary spiral in this case (when not linked to monetary deflation) is a good thing when properly understood as an efficient reallocation of resources. Remember, Say's Law, the original and correct measure of aggregate demand. Stood up unphased against the test of time and Keynes and Krugman.

      1. Nonsense! One only needs to look at computers to see the truth. At one time computers cost millions and required whole squadrons of technicians to operate. Now we have computers a thousand times more powerful embedded in our phones.

        The result is massive unemployment and global destitution. The world economy is in utter shambles. Millions of technologists are begging in the streets.

        Every economist knows this. Deflation kills. We must stop the innovation. For the children.

        1. for the children!

  2. I'm not in favor of a dip in oil prices. Not in favor at all. I propose a government program to prop up oil prices.

    Okay, I'm lying. Naked self-interest can't even get me to abandon my libertarian principles.

    I work in oil and gas. If the price drops too far, we're all screwed. I just have to hope I'm valuable enough to keep around when that happens. I also have confidence that if the price drops, you people will use more. There's always something to do with that stuff.

    1. Meh, a couple good spills and BP style extorted 'environmental re-payments' and the insurance overhead will drive the price of production right back up.

      Course depending on where you are in the chain, that may or may not help you out personally.

      1. I'm working with BP on a project right now, coincidentally. They've gone a bit nuts with redundant safeguards. Which is fine with me, since all it does is drive the cost up and require more engineering. So where I'm at, it'll just mean more work and more money.

        1. After Texas City and the Gulf spill, I can't imagine why.

          1. Oh, trust me, I understand why from the legal/regulatory/business aspect. From an engineering perspective, it's kinda dumb. Macondo was a perfect combination of dumbass and equipment failure. The redundancies we're putting in place won't address a major catastrophic failure. It's as if your car brakes failed late one night, so you install four independent sets of headlights on your next car. IMHO, they're mitigating the risks they can address instead of the ones that caused the problem.

            1. Sure. And hopefully the plant workers will use your stuff as designed, not fill a column well above the sight glass on restart and follow none of the design specs or written procedures.

              BP seems to have more of a cultural problem than anything else. Both examples cited had a lot of people shooting from the hip with little regard to the downside. There isn't much you can do to engineer that out.

              1. Oh, yeah. I'm so glad I'm out of plant work.

                I was in a meeting once where I was told we had to think about process reengineering because somebody got hit in the face with a dead-blow hammer. I made the comment that if we couldn't trust people with a fucking hammer, we might as well shut the place down right now. It was not well received.

                1. Wait, isn't a deadblow hammer one that doesn't bounce or recoil?

                  How do you get hit in the face with a deadblow hammer unless you (a) hit yourself in the face on purpose or (b) somebody else hits you in the face on purpose?

                  And, fuck, would that hurt.

                  1. somebody else hits you in the face on purpose?

                    Well you can still drop the hammer from a height...or be swinging it around when you shouldn't have or be at a place where they are being swung when you should not be there.

                    Lots of ways to be hit by it by accident.

                    I think you are taking your Iron Law too far.

        2. I don't know about the other majors, but a major brain drain is hurting BP.

    2. I propose a 100 horsepower minimum per 1000 lbs of vehicle weight "performance standard".

      1. Enforced by a penaltax.

    3. I work in oil and gas. If the price drops too far, we're all screwed.

      Do you have a rent-seeking cartel as powerful as America's Realtors?? We just need to get Frank and Dodd on the job and expand Fannie and Freddie into oil futures.

  3. The Dallas TV show was a leading indicator of a crash in the US oil business.

    History repeating itself?

    1. Only if the new show on TNT was called Edmonton.

      Who shot J.R., eh?

      1. More like "Who put this harpoon here into J.R., eh?"

    2. How does a one-time event qualify as an "indicator?"

  4. ....If the price drops too far, we're all screwed....

    Not to worry. Governmental meddling in the markets will ensure that we have indeed seen the last of cheap oil.

  5. But, but...

  6. Hey, I kept hearing that inflation would take oil up to $200/bbl here.

    I was beginning to think us Supply/Demand types were not welcome at Ron Paul rallies.

    1. Stop lying, shrike. You're an Obama supporter, not a capitalist.

      1. Liberals make the best capitalists.

        I know - that fact hurts your wingnut brain.

        1. Tell some more lies, socialist bootlicker.

        2. Sure, liberals do. Progressives, otoh have massive nanny boners and can't stay the fuck out of things they know nothing about. Like energy markets.

          1. "Bernie Sanders, Capitalist Champion" just doesn't roll off the tongue, does it?

            1. Pinkos make the best capitalists, don'tcha know.

              1. The Koch brothers are communist sympathizers?

                1. Yeah. The Koch brothers are, like, quadruple agents conspiring to destroy the world. Rachel Maddow told me so.

                  1. Was she hugging Soros when she said it?
                    That would be wicked ironic.

        3. Progressives and Conservatives make really good crony capitalists!!

          1. For conservatives, cronyism is a way of life. For progressives, it's just a stepping stone to totalitarianism.

    2. The Buttplug never ceases to amuse.

      By taking both sides of an issue, you can always be right! As long as no one notices, of course, that you are always wrong, as well.

      1. It still amazes me how he can claim to be a libertarian.

        Then again, Hillary claimed to be a "Goldwater Girl" in her youth, so maybe shrike is just pretending to be one, as well.

        1. Shrike always wanted to be a beautiful girl, but all those libertarian obstructionists blocked the introduction of government-funded sex reassignment surgery, so he's dedicated his life to fighting the good fight against the golden horde.

    3. Palin's Buttplug|7.9.12 @ 11:27AM|#
      "Hey, I kept hearing that inflation would take oil up to $200/bbl here."

      Yep, inflation is just like commodity price fluctuations.

  7. On a related note, I doubt anyone will predict we've hit peak retard.

    1. But shrike just did, a few posts up.

      1. tomorrow is another day

      2. I missed it because I don't have a trollese to English translator.

        1. You really think that's "Peak" retard?

          I have higher standards for shriek.

          1. Do you mean higher, or lower?

            1. I mean his "peak" retard has not been reached in this thread. Not yet anyways.

              1. Oh, he reached that with his very first post, Tman.

  8. 110m bpd?

    Don't bet the farm.

    1. Today would be a good day for you to die in a fire, RAL.

      1. In your case, I would heartily recommend that you bet the entire farm.

        1. Died in a fire yet? If not, get the fuck going and make it happen.

    2. Between you and shriek we have a Stack of retard on this thread.

    3. Registration At Last!|7.9.12 @ 11:46AM|#
      "110m bpd?
      Don't bet the farm."

      All I have to do is fill the tank.

  9. I thought we'd have cars running on miniature wind turbines the driver wears in the form of a hat by now. Fucking libertard Rethuglicantklansmen must have obstructionism'd our perfect new green energy utopia from becoming reality!

    1. Flying cars that fold up into briefcases. We were *promised* those, goddammit.

      1. My son asked for a jet pack for his birthday. I told him I'd get one before he did. By the look on his face I should have explained to the kid that they only exist in cartoons for now.

          1. "The target date for the first release of Martin Jetpacks for police or other Government work is mid 2013."

            awwww, shit.

          2. I loved this from the website:

            Safety is very important to the Martin Aircraft Company.

            Uh, I'm pretty sure that safety isn't really all that important to anyone involved in jetpacks.

          3. Thanks BP. Given the price point I'm still sure that neither the boy or I will be getting one.

      2. You forgot the huge WAAAAAAAAAAAAHHHHH, and the "MORE FREE SHIT NOW!!!!" Sounds just like Michael "The Globe" Moore at one of his shitty union rally speaking appointments.

  10. Everyone realizes that there is a point when Oil will run out, and that's why we need someone to manage the market to prevent oil running out.

    If we just allow the market to do as it wants, they'll run it dry instead of planning ahead for a replacement.

    1. ^ Sarcasm? Ignorance?

      1. Brilliant sarcasm. A+

        1. Steel Cunt always delivers, even in Greece.

          1. I have to imagine this is some overt trolling now. No one can be that obvious.

    2. C-

      More troll training required. Don't look to Mary or Shrike for it though. They suck too.

    3. What a clever impression of a stupid authoritarian.

      1. I'm going with sarc.
        The internal 'gonna run out/manage it so it doesn't' contradiction is too stupid even for enviro-whackos.

    4. Everyone realizes that there is a point when Oil will run out, and that's why we need someone to manage the market to prevent oil running out.

      I agree. If the proletariat would only seize the means of oil production, oil production would grind to a halt, leaving plenty of oil in the ground for everyone.

  11. I agree with the general theme of "Peak Oil" being complete and utter bullshit, but I don't like how oil-based innovation is completely left out of speculation on future oil prices. Sure, consumption's going down right now due to a -lot- of factors, but what about Cool New Shit that may create a high demand for oil? I mean, what if the secret to the hoverboard involves oil?

    Also, where the fuck is my hoverboard?

    1. The government hasn't invented it yet, mostly because you don't pay enough taxes. Now, we face the danger of having to live with the French developing hoverboards before us, because their wise and learned leader is raising his country's rate to 75%.

      Do you really want the French to beat us?

      1. Do you really want the French to beat us?

        Don't you have to pay extra for that?

      2. Do you really want the French to beat us?

        Is that possible?

  12. Yeah! Speaking of greedy capitalists I heard some evil speculators are buying oil just to hold onto it and sell it later when it's more expensive. SO GREEDY!

    1. Supposed to be a reply to Stelio Kontos.

    2. Interesting that the spekalaterz never get credit for falling oil prices.

      1. Ol' Warren, in one of his fake-populist rants, went off on speculators some time back.
        Problem is his private jet company buys petroleum futures to keep fuel costs in line.

        1. It's hard to determine whether he or T Boone Pickens is the worse rent seeking billionaire scumbag.

          1. At least T Boone built a decent college football program with his rent-seeking.

            1. Yeah, at a STATE school.

              Now, if he had pumped that money into Tulsa's program....

  13. There is no problem believing in Peak Oil. There is not an infinite supply.

    But there is a persistent under-estimation of human ingenuity.

    1. Peak Coal came and went and no one noticed. Seriously, there actually was a "peak coal" concern over a century ago. Today we are producing more coal than at the peak.

      1. Brandybuck|7.9.12 @ 12:57PM|#
        "Peak Coal came and went and no one noticed. Seriously, there actually was a "peak coal" concern over a century ago."

        There was also a huge concern over horse-poop. Couldn't get rid of the stuff quickly enough.
        "These prophets of doom rely on one thing?that their audience will not check the record of such predictions."

    2. MP|7.9.12 @ 12:33PM|#

      There is no problem believing in Peak Oil. There is not an infinite supply.

      This is why humans must be bred to provide a perpetual energy source for the Machine Overlords.

    3. There is peak oil -- the theory that at some time production of oil will reach a peak -- and there is Peak Oil -- the theory that that event will mark the end of western civilization.

      It is the latter claim that makes the headlines. It is the latter claim that can easily be proven poppycock and the product of economic illiteracy.

  14. Shorter Bailey: Tree-huggers are not the sharpest tools in the shed.

  15. speculatorz doin the evil manipulations again??...making oil 'artificially' cheap in order to guarantee the perpetuation of the fossil fuels infrastructure that be destroying the environments?~! coalition of corrupt politicians and oil companies??

    When oil is expensive, it's because of some evil plot...and when it comes down? its because of rampant overproduction and wanton rapine of the environment and teh selfishness of the corporashuns. There is no such thing as cognative dissonance in the minds of the Peak Oil true-believer.

    Where oh where is Steve Chu?! Save us! We need to be taxed for something! That will make everything better!

  16. Maugeri is unduly optimistic about decline rates, especially since unconventional/tight oil fields decline even faster than conventional fields.

    Comment on Maugeri's decline rates [pdf, short]

    If we replace Maugeri's 1.6% decline rate assumption with the IEA estimate of 4.1%, the projected loss of production capacity over the period to 2020 increases from 11 mb/d to 26.5 mb/d. In turn, the projected global production capacity in 2020 reduces from 110.6 mb/d to 95.1mb/d (a reduction of 14%). Since average decline rates would be expected to increase over this period, this projection must be considered optimistic.

    In addition, he assumes the decline rate for shale is far lower than it is. He assumes a 15% annual decline rate. However, the actually existing wells from the Bakken drop off ~85% in 3 years. [pdf, 28 pp., q.v. p. 17] Because of this, his shale production estimates are likely far too high.

    1. Aren't decline rates significantly reduced by technological advancement?

      1. They can be slowed, but the decline rates on shale wells are so fast that no technology is likely to appear soon to slow it down. Also, many of the techniques for slowing conventional wells either don't work on shale wells because of differences in geology, or already need to be used to get production in the first place.

        1. or already need to be used to get production in the first place.

          You mean fracking. Shale wells are made by fracking.

          Looks to me they just have to drill more wells. It makes sense that oil does not flow as well through a shale substrate. The reserve is still there...only to access it all, they have to drill more.

          This is not without its advantages.

          and i think RC is correct that technology could improve this greatly.

        2. JerseyPatriot|7.9.12 @ 2:48PM|#
          "They can be slowed, but the decline rates on shale wells are so fast that no technology is likely to appear soon to slow it down."

          Thank you, Mr. Malthus. Got a cite for this?

    2. Yeah, JP. If things go exactly as they are and no one figures out anything new, we'd be buried in horse poop:


      1. I feel buried in shit every time I read your comments.

        1. Then go read comments more amenable to your sensibilities.

          Daily Kos should fit that bill nicely.

        2. JerseyPatriot|7.9.12 @ 2:48PM|#
          "I feel buried in shit every time I read your comments."

          Given that you *are* a pile of shit, I'm sure you feel that way most often.

  17. lol thats pretty funny stuff dude.


  18. Given the turnaround on most major shale oil and offshore oil plays, I think the author is severely underestimating the role of decline.

    Old, conventional oil plays had much slower ramp up and slower declines. Shale and deepwater offshore plays are demonstrating quick ramp up (almost instantantaneous) followed by rapid decline. The treadmill for oil is getting faster. Granted, oil companies are getting smarter, but drilling one 2 million dollar well producing millions of barrels of oil is not whats going on today. Instead we're spending 200 million dollars to get the same amounts of oil. There may be some overshot, but the cost isn't going down. Basically, long term values still look high. The only real wild cards of cheap oil and gas lie in Russia (Iraq and Iran to a much smaller extent). Everywhere, we've found it, drilled it and guzzled it.

    1. Lost_In_Translation|7.9.12 @ 4:47PM|#
      "Given the turnaround on most major shale oil and offshore oil plays, I think the author is severely underestimating the role of decline."

      Well, Mr. Prophet of Doom, I happen to be reading "Wages of Destruction" (Adam Tooze), pg 116:
      "...in 1926, at its Leuna facility [...] IG Farben embarked on the construction of the world's first [synthetic petroleum] facility...
      ...it was motivated by that most modern of fixations, the idea that one day the oil would run out."

      Now, outside of wild guesses, do you have any data that tells us how much oil is left in the ground?

      1. do you have any data that tells us how much oil is left in the ground?

        I believe this answers that


        However, this estimate was from 1974.

        1. Uh, a vid wasn't what I was looking for.

      2. How much drinking water is left in the world? Some would say we're running all the aquifers dry, therefore we're going to have a water shortage. Then you look at the ocean and say "why?".

        Well, you can extract drinking water from the ocean using various technologies, but its a hell of alot more energy intensive than sucking it from a lake or aquifer.

        It does not matter if there's a gazillion barrels of oil 40 miles below the surface of the earth (leave aside the unlikelyness of this possibility), if it takes us a gazillion barrels of oil energy to extract it, its a losing proposition to go after it. The very informative website, theoildrum.com explained the energy extraction price phenomenom by looking at the energy required to extract the first barrel of oil (a few guys with shovels and a small wooden fire) vs. todays costs (a billion dollar rig with an army of hundred men pursuing deepwater plays much smaller than any saudi field). I forget the numbers precisely, but that first barrel was about a 1000:1 return in energy (assuming it was used at today's efficiency levels) vs. today's 4:1 and declining.

        Its a treadmill. We're getting more fit and clever, but the treadmill is exponentially increasing. There remains a possibility that we won't be clever enough to utilize oil efficiently enough at some point and thus lose the battle and fall down. Its an unknown, but a real possibility.

        So remaining oil reserves is just a number.

  19. What a surprise; the author who got the AGW story so wrong does a repeat performance on the subject of Peak Oil by making claims that are clearly not supported by facts.

    First, the production of light sweet oil has already peaked. There is no question about this since even the EIA has admitted this inconvenient fact.

    Second, claims about spare capacity are not the same thing as real spare capacity.

    Third, adding condensates and refinery gains that were not being counted consistently in the past (often omitted) only muddies the water.

    Forth, adding biofuel production that has a negative return on energy is not appropriate. (Instead of double counting, we need to subtract the energy lost.)

    Fifth, we do not care about crude production as much as we care about the production of final products that come from crude. On that front, a barrel of new heavy crude, which produces a lot of asphalt and bunker oil is not nearly as valuable as a barrel of lost light sweet, which produces a lot of gasoline and kerosine.

    Mr Bailey needs to stop paying attention to hype and start looking at the real world data. A decline in prices that comes from collapsing real demand does not mean that the Peak Oil hypothesis is wrong. In fact, such declines will only ensure that the more valuable oil is used up faster as the marginal oil is kept from the market because it is uneconomic. (See shale gas on this point.)

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